In the principal-agent framework:
A)shareholders are the principals.
B)managers are the principals.
C)managers are the agents.
D)shareholders are the principals and managers are the agents.

Question

Quizplus · Accepted Answer

In the principal-agent framework, shareholders are the principals, and managers are the agents. The shareholders hire managers to make decisions on their behalf, but there may be a conflict of interest between what the shareholders want and what the managers want. This is known as the principal-agent problem. Therefore, D is the best choice.

In the Principal-Agent Framework